Multi-sided Business Models

Most markets are one-sided in nature — customers interested in buying running shoes, for example. But a multi-sided market involves more players and each has its own interests to be served. Dual and multi-sided markets are markets in which firms need to get two or more distinct groups of customers who value each other’s participation on board the same platform in order to generate any economic value. In traditional one-sided markets, firms serve different types of customers, but they lack the interdependency.

Multi-sided Platform brings together two or more distinct but interdependent groups of customers. Such platforms are of value to one group of customers only if the other groups if customers are also present. The platform creates value by facilitating interactions between the different groups. A multi-sided platform grows in value to the extent that it attracts more users, a phenomenon known as the “Network Effect”.

“Network effects” and “Positive feedback loops” are economic terms that describe the snowballing benefits to front-runners in some multi-sided markets.

For example, the more people that use Google search, the more data the company has, and that data is the raw material for refining its search results further. The greater its market share in search, the more advertisers wants their ads placed on Google to reach the largest audience. That, in turn, solidifies Google’s position as the dominant ad market, and strengthens its pricing power. There are several positive feedback loops in this business, and they are particularly powerful.

A business model describes the rational of how an organization creates, delivers and captures value. A business model dictates the long term and short term strategies for competitive advantage which in turn get translated to Operating model (Business Process, Technology, People, Ownership and Metrics) for execution. One example for “Multi-sided Platform” is developing a gaming platform. The platform’s value for a particular user group depends substantially on the number of users on the platform’s “other sides”. A video game console will only attract buyers if enough games are available for the platform. On use it. On the other hand, game developers will develop games for a new video console only if a substantial number of gamers already.

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